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Sunday, January 16, 2005

Retirement Security Crisis: Real and Bigger Than Just Social Security

This stark essay by Robert Samuelson in the January 14 Washington Post goes much further than does the White House in saying that our federal senior citizen entitlement programs need reform. Now.

The nation's problem is not Social Security. It is all federal programs for retirees, of which Social Security is a shrinking part...

Our national government is increasingly a transfer mechanism from younger workers (i.e. taxpayers) to older retirees. In fiscal 2004 Social Security ($488 billion), Medicare ($300 billion) and Medicaid ($176 billion) represented 42 percent of federal outlays. Excluding spending that doesn't go to the elderly, the Congressional Budget Office crudely estimates that these programs pay an average of almost $17,800 to each American 65 and over. By 2030 the number of elderly is projected to double; the costs will skyrocket...

Look at the numbers. From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7 percent of national income (gross domestic product) to 13 percent. Two-thirds of the increase occurs in Medicare. To add perspective: The increases in Social Security and Medicare represent almost a third of today's budget, which is 20 percent of GDP. Covering promised benefits would ultimately require a tax increase of about 30 percent...

The central budget issue of our time is how much younger taxpayers should be forced to support older retirees -- and both political parties and the public refuse to face it. What's fair to workers and retirees? How much of a tax increase (never mind budget deficits) could the economy stand before growth suffered badly? How much do today's programs provide a safety net for the dependent elderly, and how much do they subsidize the leisure of the fit or well-to-do? (About 15 percent of elderly households have incomes exceeding $75,000.) How long should people work?

We need a new generational compact to reflect new realities...

...The debate we need involves generational responsibility and obligation. Anyone who examines the outlook must conclude that, even allowing for uncertainties, both Social Security and Medicare benefits will have to be cut. We can either make future cuts now, with warnings to beneficiaries, or we can wait for budgetary pressures to force abrupt cuts later, with little warning...

To avoid violating copyright law, I had to leave a lot out, including Samuelson's more detailed criticisms of both Democrats and the White House.

I encourage anyone with a stake in the Social Security and Medicare debate (i.e., all Americans not on their deathbed) to read the whole thing here.